Lombard Flats LLC v. JP Morgan Chase Bank N.A.

Background

The dispute concerned a mortgage loan secured by property at 949–953 Lombard Street in San Francisco. Martin Eng obtained the loan in 2005 and later transferred title to Lombard Flats LLC. The loan application described the transaction as a cashback refinance for an investment property. Bankruptcy materials identified the property as a three-flat building, with two rental units and one unit occupied by Eng’s parents.

Lombard Flats fell behind on payments. Chase sent a notice of default, later transferred loan servicing to Fay Servicing LLC, and the loan owner eventually noticed a trustee’s sale. Lombard Flats filed another bankruptcy petition, which delayed the sale. The bankruptcy case later closed.

Claims and Motion

After earlier motions to dismiss, two claims remained against Fay: a claim under the federal Fair Debt Collection Practices Act (FDCPA), based on 15 U.S.C. § 1692e, and a claim under California’s Rosenthal Fair Debt Collection Practices Act (RFDCPA), based on California Civil Code § 1788.17. The claims concerned an alleged misrepresentation that the loan balance was $3.2 million when, according to the plaintiffs, bankruptcy proceedings had reduced it to $3 million.

Fay moved for summary judgment. It argued that only the bankruptcy trustee had standing to pursue the claims and that the plaintiffs could not prove the statutory claims. The parties disputed whether the trustee could be substituted into the case, but the court addressed the merits because Fay argued that it would prevail even if the trustee were substituted.

Ruling

The court granted summary judgment to Fay on the remaining claims.

First, the court held that Lombard Flats, a limited-liability company, could not sue under the FDCPA because that statute defines a consumer as a natural person. The court noted that the plaintiffs did not contest this conclusion.

Second, the court held that the mortgage loan was not a consumer debt, which is required for claims under both the FDCPA and the RFDCPA. Both statutes cover debts arising primarily from personal, family, or household purposes. The court considered the transaction’s overall purpose when the debt was incurred and found undisputed evidence that the loan was for an investment property. The court also noted that mortgage loans on commercial or rental properties are not consumer debts under the FDCPA.

The court found that the plaintiffs had not produced evidence creating a genuine dispute for trial. Eng’s loan application identified an investment property, his residence address was different from the Lombard address, and his interrogatory responses did not assert that the loan was for personal, family, or household purposes. The court said that arguments from counsel and allegations in the complaint were not evidence. Eng’s declaration addressed efforts to obtain a loan modification but did not provide evidence about what Fay said while collecting the debt or establish that the loan was a consumer debt.

The court identified the lack of evidence supporting alleged inflated charges and allegedly threatened collection action as an additional reason supporting summary judgment. It did not reach the plaintiffs’ supplemental arguments concerning the debt-collection letter. The court stated that its earlier orders had dismissed the other claims and that a separate judgment would direct the clerk to close the case.